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ABSTRACT American College of Mortgage Attorneys The SPRING 2012 ABSTRACT American College of Mortgage Attorneys CONTENTS President’s Column by Darlene T. Marsh 1 President’s Column 2 Editor’s Notes It is quite an honor to serve as President of the College this year and I am glad to report that signs of continued economic recovery are steadily increasing. Anecdotal 3 Executive Director’s Column reports from many of our Fellows marked the 2011 year end with a flurry of deal activity that has been largely absent in recent years. Conversations with brokers, 4 Mortgage Transfers and MERS bankers and builders are also encouraging. What a wonderful change from the in California and Elsewhere recent deluge of foreclosures, bankruptcies and workouts. Last Year 10 ACMA Fellows in the News The recent announcement of a joint state and federal settlement of foreclosure fraud allegations against five of the nation’s largest lenders will hopefully accelerate 11 Enforceability of Carveouts to market improvements. The fact that no single group seems particularly satisfied Nonrecourse Loans: Recent with the terms of the settlement is an indication that it probably represents the Cases best available compromise. 15 ACMA Upcoming Meetings The College has remained strong and is well-positioned to continue its mission 16 Important Considerations while also pursuing geographic expansion. We have a new logo and a new website. Before Foreclosing on Many thanks to our Technology Committee. The meeting last fall in San Diego Condominium Units was top-notch, both in content and amenities, and the efforts of the Programs Committee are greatly appreciated. If you were not able to attend, please mark 18 Land Banking: A Sharper Tool in the Distressed Property your calendars for both the upcoming Regents Meeting at The Royal Palms in Toolkit Phoenix on April 19–21, as well as the Annual Meeting at The American Club in Kohler, Wisconsin on October 11–13. Rob Krapf has made an excellent selection 21 ACMA Committees for our meeting venue and it promises to be a memorable occasion. ACMA’s participation and affiliation with other professional groups continues to be a great benefit to our organization. The Synergy Group, composed of repre- sentatives of several professional associations (including the ABA’s Real Property, Probate and Trust and Business Law Sections, ACREL, the American College of Commercial Finance Attorneys, the Association of Commercial Finance Attorneys, Commercial Real Estate Women and the International Council of Shopping Centers), is monitoring developments with the FATF (Financial Action Task Force) 9707 Key West Avenue, Suite 100 regulations to combat money laundering and terrorist financing. The College’s Rockville, Maryland 20850 seat on ULC’s Joint Editorial Board for Uniform Real Property Acts has been a T (301) 990-9075 conduit for valuable exchange of information on a variety of topics, most recently F (301) 990-9771 exploring the possibility of a federal foreclosure law. We appreciate the efforts of E [email protected] all our Fellows involved in these ongoing relationships. W www.acmaatty.org [continued on page 3] Land Banking: A Sharper Tool in the Distressed Property Toolkit by Sorell E. Negro and Dwight H. Merriam Introduction and adhere to property maintenance that each city faced.9 Funding was lack- Vacant, abandoned, and foreclosed guidelines.5 Owners will be fined $500- ing, and the tax foreclosure laws did properties pose growing problems for 1000 per day for failing to comply, such not allow the land banks to efficiently communities throughout the United as failing to secure doors and windows, acquire title or make the properties States and complex challenges for mort- repair broken windows, keep the grass marketable.10 Land banks have since gage attorneys. With over 18 million and weeds below 10 feet, clear snow evolved to become more efficient and vacant housing units per year in 2008, from the main walkway and sidewalks, capable. 2009, and 2010,1 the housing crisis is remove debris and trash from the yard, not letting up. Such distressed prop- and maintain fences, gates, and stairs.6 There are many different organizational erties lower the value of surrounding structures of land banks. Municipalities properties, reduce tax revenue, make In addition to these mechanisms, land are creatures of the state and, thus, their neighborhoods less safe, and deter banking has developed in recent years authority is granted from state constitu- investment.2 Municipal costs to main- to successfully deal with systemic prob- tions and enabling statutes, including tain them, including clean-up, land- lems of vacant or foreclosed properties. the authority to create land banks. Some scaping and policing costs, are also states have state statutes that expressly significant.3 Land Banking authorize municipalities to create land banks and enable intergovernmental Repurposing abandoned or foreclosed Overview cooperation for regional goals such as properties requires an orchestration of Land banks acquire vacant and aban- redevelopment and affordable hous- legal tools. Mortgage attorneys should doned properties, primarily through ing. Although enabling legislation is be familiar with several approaches. tax foreclosure, and then hold and generally required, in certain states, Municipal blight ordinances, for manage the property for future use or municipalities may have the authority example, can generally be enacted to resale. Properties may also be acquired to develop a land banking scheme with- help promote public safety and welfare. through mortgage foreclosure, fore- out express statutory authority, such as Some can also protect property values. closure of government liens from code through eminent domain powers. A For example, a Connecticut statute violations or from third parties depos- redevelopment authority or munici- authorizes municipalities to define iting property in the bank.7 Through pal housing development department and address blight.4 A municipality land banks, municipalities demolish may perform similar functions as land may prohibit causing blight or failing the properties or rehabilitate them for banks, but their authority to acquire to remedy blight by imposing fines. resale or future use, depending on the and dispose of property is more limited, Another important tool is requiring the plan for the community’s development. and their approach is often confined to registration of vacant properties. Many a specific district or area.11 local governments throughout the Land banks first developed in the 1970s country are enacting ordinances requir- in St. Louis and Ohio, followed by States can enable land banking by ing that vacant properties be registered Atlanta and Louisville over a decade streamlining and shortening foreclo- in order to hold owners responsible for later, to deal with abandoned properties sure processes and authorizing funding maintaining their properties. For exam- in tax foreclosure.8 While these rudi- mechanisms, such as authorizing issu- ple, in December 2011, Cook County, mentary land banks dealt with repur- ance of tax-free bonds or tax-increment Illinois passed such an ordinance posing some properties, they lacked the financing. States can also allow land requiring owners or mortgage holders capacity to effectively deal with the sys- banks to waive back taxes or sell proper- to annually register vacant buildings tem problem of abandoned properties ties at below market value, emphasizing THE ABstRACT 18 SPRING 2012 community development over profit, land banks vary in their creation and the interest and penalties on delinquent and provide funding and tax incentives functions to serve their varied pur- tax liens.23 Property of land banks in for land banks. poses. For example, Michigan enables Michigan and their income are exempt local jurisdictions to create land bank from all state and local taxes and special Generally, following the state enabling authorities with broad powers and assessments.24 statute, local governments adopt an provides tax breaks to land banks to ordinance to create a land bank author- encourage land banking. The Genesee Cuyahoga County, Ohio, facing ity. Land banks are often nonprofit County Land Reutilization Council approximately 13,000-15,000 fore- organizations or government entities was created in 2002 from an inter- closures per year since 2005,25 fol- and are run by a board of directors local agreement between the county lowed GCLBA as a model to set up that is elected or appointed by the and Flint, and in 2004, it became the its own land bank, upon state legisla- local government. Once the property Genesee County Land Bank Authority tion authorizing a land bank in that is acquired, land banks may have the (“GCLBA”). This land bank became county. The Cuyahoga County Land authority to waive back taxes and clear a remarkable success and a model for Reutilization Corporation (“CCLRC”) titles. They rehabilitate the property— other communities seeking to set up was established in 2009 as a non-profit through improvements, redevelop- land banks in response to the mortgage community corporation. CCLRC has ment, or demolition—or maintain it crisis. It acquires most of its properties entered into over a dozen Memoranda for future use or resale.12 Land banks through tax foreclosures, and between of Understanding with different cit- generally look at the property’s char- 2004 and 2009, it successfully repur- ies, setting forth means of maintaining, acteristics—including geography, rela- posed 1500 properties.17 developing or demolishing properties, tionship to the community, reason for and prioritizing the disposition of prop- vacancy or abandonment, condition, Michigan’s Delinquent Property Tax erties.26 It acquired nearly 500 prop- and environmental contamination—to Foreclosure Act of 1999 paved the way erties in its first year.27 Following the determine potential re-uses.13 for the successful land bank.18 The law CCLRC’s trial period, Ohio enacted a authorized counties to acquire prop- statewide land banking enabling statute The federal government has provided erties through tax foreclosure and in 2010.28 significant funding for land banks fol- to create a fund from the sale of the lowing the housing crisis.
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